Survey shows drop in spending power

Spending power continued to decline last month, a survey has showed, although there were signs that the squeeze on household incomes was starting to ease.

Discretionary spending power fell by 0.3% in May, the Lloyds TSB spending power report said, which on average equates to almost £34 a month less than a year ago to spend on non-essential items.

However, growth in essential spending eased, suggesting consumers could be starting to feel the effects of falling inflation. The consumer price index (CPI) fell to 3% in April, from 3.5%, in March, and is expected to fall further in figures released this week.

The decline in spending power, after inflation, illustrates that conditions for consumers remain tough largely due to weak income growth, Lloyds TSB said.

Patrick Foley, chief economist at Lloyds TSB, said: "Weak income growth and stubbornly high inflation is ensuring that the squeeze on consumers is remaining in place longer than many thought it would.

"Growth in spending on essentials is now showing signs of moderating, which is positive. But the weakness in income growth is severely limiting the benefits for consumers."

Some 79% of people believe the current level of inflation to be "not good" or "not at all good", compared with 85% in April and 83% in May last year, Lloyds said. But greater affordability of essential items was a key factor in limiting the squeeze on consumers in May, Lloyds added, with annual growth slowing across nearly all measures.

Household finances showed some improvement in May, Lloyds said, with 54% of survey respondents stating that they lived comfortably or meet their bank or current account outgoings with some left over each month.

People aged 35-54 were found to be more likely to say they do not have enough money to meet monthly outgoings, while those aged 24 or under are least likely to feel financially restricted.

Jatin Patel, director of current accounts for Lloyds TSB, said: "Consumers are still under real pressure financially, but we are beginning to see some initial signs that the squeeze on household finances may be easing as affordability of essential items improves."